Vertical integration in the wine industry: a transaction costs analysis on the Rioja DOCa

The authors study the determinants of make or buy decisions for grapes made by wineries belonging to the Rioja Qualified Designation of Origin (DOCa). In particular, they analyze the relationship between product quality and vertical integration. Although there is a long tradition in transaction cost theory of analyzing the determinants of make or buy decisions in manufacturing, surprisingly few empirical studies have been conducted in the agriculture and food and beverage industry. Likewise, although quality is a key competitive variable in many food sectors, only a few studies have analyzed quality in their models. The authors find that transaction costs and product quality provide a useful explanation of vertical integration in the wine industry in the Rioja DOCa. Wineries that produce high‐quality wines are more likely to integrate vertically than those producing low‐quality wines. They also find that the size of the winery significantly affects make or buy choices. Implications are explored for managers facing a governance mode choice. [EconLit Classifications: L220, Q130].